Computer-implemented Method of Managing Credit Applications Found to be Abstract Idea

February 8, 2012

Last week the Federal Circuit court added to the slowly growing body of law defining the limits of patent-eligible subject matter in light of the Supreme Court Bilski opinion. In Dealertrack v. Huber, the court found a computer-implemented financial services method not to be patent eligible because the claimed method was merely an abstract idea. Specifically, the court stated that use of a general purpose computer, without more, is insufficient to convert an otherwise abstract idea into a patent-eligible method. Also central to the court’s ruling was its opinion that the claim foreclosed all uses of the concept, not merely a specific application of the concept.

forwarding funding decision data from at least one of the remote funding source terminal devices to the remote application entry and display device

The claim further recites that the selectively forwarding step can include either sending to more than one funding source at one time, or more than one funding source sequentially. Therefore, in essence, the claim recites receiving credit application data, sending the application data to more than one lender, and then sending a notice of whether the credit application was accepted by any of the lenders.

The Federal Circuit’s Analysis

The Federal Circuit described the claimed invention as “the basic concept of processing information through a clearinghouse.” This rendered the claims invalid under 35 USC § 101 because they are “preemptive of a fundamental concept or idea that would foreclose innovation in this area.”

The court rejected two primary arguments as why the claims are not directed to an abstract idea. First, the court was not persuaded that because the steps were “computer aided” they are limited to an application of the clearinghouse idea, rather than to the idea itself:

[T]he ‘427 Patent does not specify how the computer hardware and database are specially programmed to perform the steps claimed in the patent. . . . The claims are silent as to how a computer aids the method, the extent to which a computer aids the method, or the significance of a computer to the performance of the method. The claims here do not require a specific application, nor are they tied to a particular machine. . . . the claims cover a clearinghouse process using any existing or future devised machinery.”

Second, the patent owner argued that the claims were not directed to a basic concept, because they did not cover the entire field of clearinghouses, but were limited to a specific application related to the automobile lending process. Again, the court was not persuaded:

The restriction here is precisely the kind of limitation held to be insufficient to confer patent eligibility in Bilski II. The notion of using a clearinghouse generally and using a clearinghouse specifically to apply for car loans, like the relationship between hedging and hedging in the energy market in Bilski II, is of no consequence without more.

The Lessons of Dealertrack

The most helpful instructive portion of the opinion states that the claims are invalid because they fail to identify how the hardware is programmed, how a computer aids the method, the extent to which a computer aids the method, or the significance of a computer to the performance of the method. Therefore, going forward, it will be beneficial to include in the claims themselves, not merely the specification, limitations that illuminate why the computer is necessary, helpful or significant.

For example, in the Dealertrack claims, the computers were recited as receiving data, but not as performing any specific manipulation of the data. Perhaps some additional limitations requiring the application entry and display device and the remote funding source terminal device to manipulate, store, or display the data would have been sufficient.

Some Additional Thoughts

The Federal Circuit analysis in Dealertrack is not very helpful in distinguishing between patent-ineligible abstract ideas and patent-eligible specific applications going forward. The opinion identifies the claims as being directed to the idea of a clearinghouse. But just about every claim can be characterized as being directed to an idea. Consider a claim directed to a light bulb that recites a vacuum tube, a resistor within the vacuum tube, and positive and negative terminals for passing an electric current through the resistor. Those limitations recite only the elements that are included in the concept of a light bulb. Nevertheless, it seems self-obvious that such a claim is not abstract. How do we determine what limitations are specific and what limitations are directed to an abstract idea? If we add the limitation that the positive and negative terminals are contained on a threaded stem that can be screwed into an electrical socket that might be more specific. However, that claim can be characterized as being directed to the idea of a light bulb that fits into a light socket. It seems to depend completely on what level of abstraction is chosen.

Justice Stevens warned in his concurrence to the Supreme Court Bilski case that the majority opinion “never provides a satisfying account of what constitutes an unpatentable abstract idea. . . . The Court essentially asserts its conclusion that petitioners’ application claims an abstract idea. This mode of analysis (or lack thereof) may have led to the correct outcome in this case, but it also means that the Court’s musing on this issue stand for very little.” Justice Stevens’s warning in Bilski applies here. The Federal Circuit did apply a similar analysis to that in Bilski—i.e., they asserted their conclusion that the claims are directed to a clearinghouse concept, without any real guidance on how they reached that determination.

Furthermore, the Federal Circuit has conflated the issues of obviousness and abstractness. Assume for the moment that no one had ever conceived of a clearinghouse. If the inventors in this instance were the first to conceive of a clearinghouse concept, and they limited their claims to the particular embodiment here that relates to credit application data implemented using “a remote application entry and display device” and “remote funding source terminal devices,” they would clearly not be usurping the field of clearinghouses. The clearinghouse concept is seen as being an abstract idea only because it is a well-known concept. The Federal Circuit is doing what the Supreme Court seemed to do in Flook, but disavowed in Diehr and Bilski, namely requiring that the point of novelty occur within the technological part of the claim and not merely in the data manipulation.